World Bank Predicts Oil Price Spike If Conflict Spreads

The World Bank issued a dire warning on Monday that oil prices could skyrocket if the Middle Eastern war between Israel and Hamas escalates or spreads. The cost of this basic commodity could reach “uncharted waters.”

The report predicted a staggering increase in oil prices of 56-75% if a major disruption emerged from the conflict. This would result from the world oil supply dropping by roughly 6-8%.

This worst-case scenario would see oil jump to $140 to $157 per barrel. For comparison, a barrel of benchmark Brent crude traded in the $87 range on the last day of October.

The report categorized a medium disruption as halting 3-5% of the global supply. This, it said, would increase prices from 21-35% in a market that is already strained due to the Russian invasion of Ukraine and its spillover effects.

The World Bank said the war on Hamas terrorists has had only a “small” effect so far. However, “the latest conflict in the Middle East has raised geopolitical risks for commodity markets.”

It noted that previous wars in the region triggered higher prices and unpredictable commodity markets. History suggests, according to the report, that an escalation of the current war “could trigger sharp oil supply disruptions.”

The Hamas terror attacks of Oct. 7 spawned a massive Israeli military response — just as the attackers well knew that it would. Iran issued warnings of getting involved if Gaza was invaded but so far has stayed on the sidelines.

Over the weekend, Hamas called for regional assistance to fend off Israel’s push to destroy the terrorist organization. This call went out to, among other allies, Iran-supported Hezbollah in Lebanon.

Meanwhile Israeli Prime Minister Benjamin Netanyahu declared a “second stage” in the war.

Barring an escalation, the World Bank’s Commodity Markets Outlook believes oil prices should drop from the current average of approximately $90 per barrel to average of roughly $81 per barrel in 2024.

World Bank Chief Economist Indermit Gill predicted a nearly unprecedented situation if the Middle East war spreads. “If the conflict were to escalate, the global economy would face a dual shock for the first time in decades — not just from the war in Ukraine but also from the Middle East.”

Then there would be the impact on other industries. Food, for example.

A spike in oil prices would inevitably result in food inflation that could be crippling for the developing world. The U.S., which has battled high inflation throughout the Biden presidency, would absorb yet another price shock.